Is it harder to get a mortgage if you're self-employed?
If you’re self-employed, it can be more of a challenge to get a mortgage because you’ll need to prove you have a reliable income. But getting a mortgage when self-employed is certainly not impossible.
How do you get a self-employed mortgage?
If you own more than 20% of a business in which you earn your main income, you will be considered self-employed.
Self-employed borrowers come in many forms – many are sole traders, often running a small business, others are freelancers working as part of team, then there are contractors and sub-contractors.
If you’re self-employed and looking for a mortgage, you will, in theory, have access to the same range of mortgages as everybody else and you’ll need to pass the lender’s affordability tests in the same way as any other borrower.
But because there is no employer to vouch for your wage, self-employed people are required to provide far more evidence of their income than other borrowers.
As with all mortgage applicants, it's not solely your income that mortgage lenders are interested in, but the stability of your long-term earning potential. It could help to show how you've dealt with any self-assessment tax returns, making payments where requested, as well as meeting payments within your business showing how well you manage money.
What will I need to provide for a self-employed mortgage?
To prove your income when you apply for a self-employed mortgage, you will need to provide:
- Two or more years’ certified accounts
- Tax Calculation form (Previously called SA302 forms) and/or a tax year overview (from HMRC) for the past two or three years
- Evidence of upcoming contracts (if you’re a contractor)
- Evidence of dividend payments or retained profits (if you’re a company director)
Having a healthy deposit and a good credit history will also help your chances of securing a mortgage when you’re self-employed.
As well as providing evidence of your income, you could also be asked to provide:
- Driving licence
- Council tax bill
- Utility bills dated within three months
- 3-6 months’ worth of bank statements
Lenders will want to examine your bank statements to look at how much you spend on bills and other costs to be certain you could afford your mortgage repayments. They may ask about:
- Household bills
- Travel and commuting costs
- Credit card and store card repayments
- Loan repayments
- Car finance agreements
- Large transactions
- Frequent cash withdrawals
- Frequent cash deposits
Do self-employed people have to pay higher mortgage rates?
Self-employed mortgages aren’t necessarily more expensive. As long as you’re able to supply enough information about your income, you should qualify for the same mortgage deal as someone with a comparable salary in a permanent, full-time job.
The mortgage rate you get is much more likely to depend on the size of your deposit, as well as your credit rating.
The more can put down as a deposit, and the higher your credit rating, the better your mortgage rate is likely to be.
However, if you struggle to get accepted by a mainstream bank, you may have to apply with a specialist lender that deals with self-employed borrowers, and you may find the rates are higher.